Korea Electric Power Corporation (KRX:015760) Surges 27% Yet Its Low P/E Is No Reason For Excitement

Korea Electric Power Corporation (KRX:015760) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 95% in the last year.

Even after such a large jump in price, Korea Electric Power may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 4.6x, since almost half of all companies in Korea have P/E ratios greater than 15x and even P/E's higher than 35x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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Recent times have been pleasing for Korea Electric Power as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Korea Electric Power

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Korea Electric Power.

How Is Korea Electric Power's Growth Trending?

In order to justify its P/E ratio, Korea Electric Power would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 139% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 17% per year over the next three years. With the market predicted to deliver 21% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Korea Electric Power's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Korea Electric Power's P/E?

Korea Electric Power's recent share price jump still sees its P/E sitting firmly flat on the ground. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Korea Electric Power's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Korea Electric Power, and understanding should be part of your investment process.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.